Caribbean Cement Company Equity Report (9M’20)

Valuation Summary

To ascertain a fair value estimate for CCC, we utilized a free cash flow to equity model, which resulted in an intrinsic value estimate of $77.77 and underpinned our OVERWEIGHT recommendation. The model’s 10-year forecast assumes an average revenue growth of 10.30% with the bulk of the company’s growth being reported in 2021 at 15.00%. We utilized a cost of equity of 16.97% and a long term growth rate of 5.00%, which reflects the inflation midpoint. These estimates resulted in an equity value of approximately $66.20 billion, which translates to the aforementioned intrinsic value per share. Our forecast anticipates that continued construction-related capital expenditures will aid in bolstering the Company’s operations. We foresee growth in 2021 being stronger than in 2020 as the low-interest-rate environment will make the cost of capital relatively attractive for both mortgagers and developers. This bodes well for the real estate industry, and consequentially the construction industry. Given the Company’s monopolistic positioning over this critical raw material, they will be able to capitalize on the strengthening of construction activities. Also, with the government maintaining plans to establish the south coast highway, this would be a key driver of performance over the short-term. Additionally, given the close relationship of CCC with its international parent company, Cemex will open additional opportunities to further its regional and international footprint for its products.

Last Price (J$) 55.89
Year to Date Return -32.99%
Dividend Yield 0.00%
Forward P/B 2.96
Estimated Fair Value 77.77
Estimated Shareholder Return Upside 39.15%
Recommendation Overweight

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